A Comment -- General Comments From an Expert (A Commentary)

It's a nervous time for all investors: removing the monetary stimulus (free money) that has fueled the bull market. Suddenly, central banks are boosting rates to tame hot inflation, and throw in the Russian war. Is this all being discounted already in the market? He doesn't see a recession this year, there will be a slowdown. Consumers remain pretty flush from money saved up during the pandemic. They're still buying cars (inventories can't keep up), for example, and jobs are plenty. Consumer discretionary stocks are now priced like there is a recession. He still like energy stocks and financials are getting interesting. Semis, cars and tech payment stocks look interesting, too. The market has corrected a lot so that valuations have declined to reasonable levels. The few exceptions are megatech, which have fallen, but when they completely capitulate, then we could see the market turn a corner.

Educational Segment. Looking at fixed income and considering whether it is time to buy them again or look for an alternative. AGG is the broad bond market, and it is down 9%, year to date. People are probably looking at returns and saying it is terrible. "What else can you buy?" is probably on their mind. Private credit could be an alternative. Publicly traded private mortgage funds ETF are volatile. The private credit funds that are not necessarily open to the public returns much more stable returns.

Tech ETF suggestions. The tech sector in Canada (XIT) is dominated by SHOP. Any company is limited to 25% in the fund, however. In tech, Canada does not have much to offer. Chinese internet names (KWEB) could be an option too. XLK or QQQ could be for the US market. Would not buy the dip at the moment. Thinks it has not yet bottomed.

It's clear that the market did not want to believe how the hawkish the Feds would be. Now that Powell has now confirmed considering multiple rate hikes, we are probably going to test March lows. Feds will be taking away the punchbowl. Inflation is a real problem now, which it has not been for decades. It is sticky and the source where issues are coming from will not be fixed by central banks raising interest rates. Markets will probably have a rocky couple quarters.

Tech earnings will be a sort of saviour. They are earning, but what do you pay for it? Earnings are not likely to grow that much more. Prices should come back to better value. Vast majority of big tech names will report this week. Good earnings does not necessarily mean that they will go up. Writing puts on Apple and Microsoft to generate some income.

In volatile trading times, focus on the long term. Indicators come from the economy. Is there enough credit available to continue. Buy quality companies with good balance sheets, are profitable, are more mature and have long term growth prospects. Any industry is fine as long as the individual companies have these qualities. Credit spreads will slowly widen which is good for quality companies but puts pressure on more speculative and lower quality ones. Retail investors should seek advice.

Question was regarding the tightening of credit. Banks need to build reserves as the economy slows. In the U.S. banking system mortgage backed securities will not be worth as much as before and this affects the ability of the banks to buy back shares and increase dividends. Tightening of credit will have an effect on the capital of U.S. banks.

Question was on semi conductors and with the shortage of them, why are all producers at lows. Shortage is causing the problem for circuit board makers. Even if only one chip is missing, then the order has to be cancelled. Nobody knows when the shortage will stop and there is more capacity.

Cash He's shorting the QQQ stocks and the S&P, given the Fed's hawkish stance (pressuring stocks today) and now an alternative to stocks--bonds with yields near 3%. Don't fight the Fed; don't buy when markets dip. Instead, build and hold cash like he is. There will be better times. Deploy more capital by buying the bottom or protect your capital? He's doing the latter.

Catalysts to keep an eye on. So many balls in the air right now. Inflation, higher commodity prices, possible wage inflation, possibly inflation expectations are too high, Ukraine. All making it much more difficult to understand where the economy is going and what the Fed's intentions are. You can see this from the volatility in the stock market. One day up, one day down, no consistency. Watch whether the Fed decides to increase by 50 bps, do that for several months, and then slow down. Also watch whether companies continue to beat earnings, but the more important thing is what are they forecasting for the next several quarters. Will they be able to increase pricing, maintain margins, and grow free cashflow? The other geopolitical issues are important because they have an effect on how central banks look at the world, especially in Europe. The IMF brought down global growth projections for the year. Volatility will continue for the next and following quarters at least. Volatility can be your friend, as you can buy companies you like at relatively cheap valuations.

Sectors to look at. Hard to just stay in cash, as you miss opportunities when the market turns around and rallies. You could be in bank or financial stocks, or healthcare which will be more defensive. Interest rates might impact utilities, but they give you a really nice dividend and you can manage through the volatility. For asset allocation, you want to be in an asset class that offsets equity risk. Traditionally, that's been fixed income. You could be in some defensive names, collect the nice dividend, and wait for a chance to change your portfolio to something with a bit more growth when we get more clarity on interest rates and geopolitical situations.

Money not flowing to venture exchange commodities. He doesn't buy a lot of commodities. When you look at gold, you'd think it would be substantially higher. But reality is that some investors have gone to Bitcoin. Also, a lot of commodity companies realize investors are more interested in their balance sheet and returning capital to shareholders, rather than just going out and buying assets. Plus, people are unsure whether commodity prices can be sustained for a long time, but might go back to more traditional levels. Lastly, in this volatile environment, people are much more wary of being in smaller cap, highly volatile securities.